Signal Request: Lower the USDC-A Liquidation Ratio and Risk Premium

Now that we are putting the PSM on hold. It makes sense to move to our next best option to restore the peg - lowering the Liquidation Ratio on USDC-A. Lowering the Liquidation Ratio to near 100% will effectively give us a mechanism similar to the the PSM for the purposes of this short term farming demand.

One thing to note is that, since USDC auctions are currently disabled, we need to take care to make sure there is enough of a buffer that we do not end up with unbacked Dai due to accumulating Stability Fees. It is for this reason I am also suggesting we consider lowering the USDC-A Risk Premium as well.

As an example, if we maintain the current rate of a 4% Risk Premium and the Base Rate stays at 0%, then we give ourselves a little over 1 year of buffer at a liquidation ratio of 105%. If we were to set the Risk Premium to 0% then we would effectively have no time limit to get the auctions in at any liquidation ratio.

In terms of timelines - I’m hearing from Rune anything above 6 months is a conservative estimate to delivery for the USDC auction support. Please correct me if I’m wrong on that.

Update (July 23rd): I’ve extended the deadline to next Wednesday, and added pros/cons for lowering the Liquidation Ratio.


  • Approaching a Liquidation Ratio of 100% will allow stablecoin farmers a method to get into Dai that is more attractive than market buying at a premium.
  • Allows for higher leverage shorting of the peg vs USDC.
  • In general it improves capital efficiency not having to hold 20% extra USDC doing nothing.


  • Higher leverage allows a single actor to more easily max out the debt ceiling. This makes Maker more prone to “trolling” behaviour where one or two actors squeezes legitimate actors out.
  • Lowering the Liquidation Ratio decreases the amount of time the auctions team has to turn on the auctions. This is because the accumulating Stability Fees may put the collateral value under 100% of the Dai value.

Poll 1 - Lower the USDC-A Liquidation Ratio

  • Keep the Liquidation Ratio at 120%
  • Lower the Liquidation Ratio to 115%
  • Lower the Liquidation Ratio to 110%
  • Lower the Liquidation Ratio to 105%
  • Lower the Liquidation Ratio to 101%
  • Abstain

0 voters

Poll 2 - Lower the USDC-A Risk Premium

  • Keep the Risk Premium at 4%
  • Lower the Risk Premium to 3%
  • Lower the Risk Premium to 2%
  • Lower the Risk Premium to 1%
  • Lower the Risk Premium to 0%
  • Abstain

0 voters

This poll is being extended to Wednesday July 29th as the risk team does not believe this to be an emergency.


Please note that these polls are to gauge user opinion. If a combination such as 101% LR and 4% RP wins (which gives us under 3 months of buffer to implement the auctions) the risk team may decide those numbers are too unsafe.

I don’t think this situation is a drastic emergency. IMO, a 101% CR is not warranted, and also going straight to executive on friday is also not warranted. We are likely to see $89m in DAI being unwound on Saturday (40% of current M0 DAI supply) Link

Decreasing the USDC-A collateralization ratio is one of the strongest bullets we have. At the same time it is still limited by the USDC-A debt ceiling. (So no point of a very low CR if we’re still constrained by the DC)

I do agree that the USDC-A CR could be lowered. But I don’t think we need to make drastic moves to lower it to 101%. Once you lower the CR, it’s much harder to ever raise the CR.

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I think lowering to 101% is much too steep, plus it prevents us from keeping the stability fee relatively high. Also like Jiecut said the debt ceiling still limits the capacity to use the usdc collateral vault, and there hasn’t really been a shortage of demand for usdc.


On another note, when are we gonna enable liquidations? Whats the parameter/threshold we’re looking for to determine when its safe?

If we suspend PSM, I can only choose 0 risk premium. This is a helpless choice, all for PEG.
If we implement PSM, I would choose a 4% risk premium.


I’m good with 110% LR and 2-4% SF. However, I’d like to avoid these kinds of liquidations when we flip the liquidation switch on like in the following example:

I open a USDC vault and draw it all the way down to 110%.
Fees accrew, I go to 109%.
If I walk away for a few months, not lurking in chat rooms everyday to keep up with the news
Liquidations get turned on and I’m rekt

Maybe a pop-up warning on the UI explaining what our plan is will be enough to prevent this?


@lix Not guaranteed, other than spreading the news, the LR might be lowered when liquidations get turned on.

I think we have to prepare for the emergency shutdown. This crisis lasts for 4+ months and it is a great time to test what happens during the ES and after it. Will the process go smoothly? Will ETH price be affected? Will everyone get the value he/she expects? Where will the DAI liquidity go? Will people be ready to buy/mint DAI again?

We better do the “test” now so that we know what happens when there is a real attack on DAI and >$1B at stake.

Tweaking LR ratios won’t help - especially when we are doing just slight changes. I’m voting for 101%/0% but it really doesn’t matter.

Just as a note, even if this poll is up for a day, the poll isn’t going to go on-chain next Monday (or into the exec this Friday) unless it’s seen as a necessary response to an emergency. It’s important that we maintain the process in cases where things aren’t on fire.

I know Cyrus has been doing very short signal requests on the debt ceilings over the last few weeks, but he is allowed to do that based on the fact that he’s part of a ratified Risk Team.

So your options for this are either:

  1. Leave the poll up for longer, and have it included in the weekly polls on August 3rd for implementation in an executive on August 7th as a non-standard weekly poll.
  2. Get Cyrus to weigh in saying that this should be done as an emergency measure prior to that.
  3. Poll on whether we should do this as an emergency action prior to that and have that poll get a majority (>50%)

As a side note, it’s worth knowing that Dai just hit 1.025 on Coinbase.


So far, DAI has reached 1.028USDC. I don’t know what the emergency measures of the risk team are. After the announcement of the suspension of PSM, the exchange rate of DAI relative to the US dollar rose rapidly, and the loan interest rate of DAI on other DEFI platforms (AAVE) exceeded 40%.

So one thing to note is that there’s currently 103m DAI in this Incentivized Balancer Pool (45% of M0). It’s a very high incentive putting lots of upward pressure on the peg. The incentive ends on Saturday. We’re likely to see some unwinding unwinding by then.


In the era when mining is popular, there will be N other projects to imitate in the future.

I would like to avoid that too. 110% is the lowest I want to go. If we’re going to lower it in 6 months I would change my vote to 115%.

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What we could do to prevent this is lower the LR again at the same time we turn on liquidations.

This is a really key point. IMO it would be irresponsible to take any action before we see this unwind take place. Prior to YFI/DAI farmiing, Dai was <$1.01. I’m hoping to see some alleviation by the end of this weekend. I think the current poll is a great signal for how the community feels, but I’m not sure if we should rush it straight to an emergency unless something drastic happens.


I’ve updated the end time to be next Wednesday as Cyrus does not believe this to be an emergency. I’ll update with some pros and cons to improve consensus later today.

Reminder that the signal polls are both multiple choice, I’d encourage everyone to vote yes on anything that they would support in an on-chain MKR poll. (e.g. if you support lowering the LR to 105%, would you also support lowering it to 110% over keeping it at the current 120%?)


I can’t ‘Like’ this enough. I would say that we’re struggling to get consensus here, which worries me because there is a segment of people that want to see these changes happen as an emergency action.

I’d like to encourage everyone to discuss this (and other) options further and try to build consensus around a mutually acceptable solution.